Casualty And Property Insurance
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Which of the following is a hazard as opposed to a peril?
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Fire
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Lightning
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Wet pavement
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Flood
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This quiz focuses on property and casualty insurance, exploring pure risks, the law of large numbers, insurable interests, and risk management methods. It assesses understanding of insurance principles and decision-making in risk scenarios, valuable for professionals in finance and insurance sectors.
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- 2.
Which insurance company department is responsible for paying insureds' covered losses?
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Audit
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Claims
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Underwriting
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Reinsurance
Correct Answer
A. ClaimsExplanation
B is correct. The claims department sees that the company's insureds are adequately indemnified for their losses. Claim adjusters determine the cause of loss, whether the loss is covered by the policy, the value of the loss, and the amount of loss payable by the policy.Rate this question:
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- 3.
Which insurance company department is responsible for accepting and rejecting applications based on company standards?
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Underwriting
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Loss Control
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Claims
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Agency
Correct Answer
A. UnderwritingExplanation
A is correct. Underwriting is the process of selecting certain types of risks and rejecting others so that the insurer will have a profitable book of business.Rate this question:
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- 4.
Which one of the following injuries qualifies as a compensable injury under workers compensation laws?
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A factory worker fractures her arm while working overtime on the assembly line.
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A hotel maid falls down the stairs while cleaning her own home.
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A secretary accidentally swallows his gum while in the company lunchroom and chokes when it gets lodged in his windpipe.
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An office manager is injured in a traffic accident on his way to work.
Correct Answer
A. A factory worker fractures her arm while working overtime on the assembly line.Explanation
A is correct. Work-related injuries must arise out of employment and arise in the course of employment to be compensable. Time, place, and circumstances are all considered in making this determination.Rate this question:
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- 5.
Which of the following describes the principle of indemnity?
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After a loss, an insured should be restored to approximately the same condition that existed before the loss.
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Every insured will receive full compensation for all losses in all cases.
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When property is damaged or destroyed, the insurance company must pay the full replacement cost.
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In the case of bodily injuries, liability coverage must be available without regard to any policy exclusions.
Correct Answer
A. After a loss, an insured should be restored to approximately the same condition that existed before the loss.Explanation
A is correct. The principle of indemnity states that when a loss occurs, an individual should be restored to the approximate financial condition he or she was in before the loss.Rate this question:
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- 6.
The name of a liability insurance policy that provides high limits of coverage above underlying coverage and may fill a number of insurance gaps is
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A general liability policy.
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An umbrella policy.
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An errors and omissions policy.
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A difference in conditions policy.
Correct Answer
A. An umbrella policy.Explanation
Answer B is correct. Umbrella policies provide high limits of liability coverage above underlying policy limits and might fill a number of insurance gaps. Both Personal and Commercial Umbrella policies are available.Rate this question:
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- 7.
Who is responsible for licensing insurance agents?
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Lloyd's Associations
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State insurance department
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Interstate Commerce Commission
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Insurance Services Office
Correct Answer
A. State insurance departmentExplanation
B is correct. State insurance departments devote much of their time to working with insurance agents. One of their most important duties is agent licensing.Rate this question:
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- 8.
The insured's policy is nearing the expiration date. The insurance company doesn't want to continue the insured's coverage, so it sends the insured a notice that the policy will not continue beyond the expiration date of the policy. This is considered which of the following?
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Flat cancellation
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Nonrenewal
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Pro rata cancellation
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Unearned renewal
Correct Answer
A. NonrenewalExplanation
A8: B is correct. Nonrenewal occurs when the insured or the insurer decides to not continue coverage for another policy period after the current policy period expires. Flat cancellation means to cancel a policy on its effective date. Pro rata cancellation means to cancel a policy midterm so that a refund is made of unearned premium.Rate this question:
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- 9.
Failure to use the care that is required to protect others from the unreasonable chance of harm is called what?
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Proximate cause
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Negligence
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A criminal act
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An intervening cause
Correct Answer
A. NegligenceExplanation
B is correct. Negligence is the lack of reasonable care that is required to protect others from the unreasonable chance of harm.Rate this question:
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- 10.
Renata's home is demolished in a fire that started when a neighbor misdirected the fireworks he set off to celebrate the Fourth of July. Renata's insurance company pays her for the damage, and then files suit against the neighbor to recover the amount it paid for the loss. This is an example of the application of what policy condition?
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Liberalization
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Subrogation
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Abandonment
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Salvage
Correct Answer
A. SubrogationExplanation
B is correct. The subrogation condition transfers the insured's right to collect from a responsible third party to the insurance company.Rate this question:
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- 11.
The Johnsons' home is covered by a Special Dwelling policy. When a fire damages the home, the family is forced to stay at a motel for a month while repairs are made. What coverage might reimburse them for these expenses?
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Dwelling coverage
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Additional living expenses
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Personal property coverage
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Fair rental value coverage
Correct Answer
A. Additional living expensesExplanation
B is correct. Both the Broad and Special forms make coverage available for Additional Living Expense. This coverage pays for additional living expenses the insured incurs after a covered loss, including reasonable motel, dining, laundry, and transportation expenses. These expenses are covered for the time needed to repair or replace the damaged property or become settled elsewhere in permanent quarters.Rate this question:
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- 12.
Benson Pharmaceutical Company decides not to manufacture a new drug after determining that it has serious potential side effects. This is an example of which risk management method?
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Transfer
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Retention
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Avoidance
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Reduction
Correct Answer
A. AvoidanceExplanation
C is correct. By not producing the drug, Benson avoids the risk of being sued by consumers who are injured by the drug.Rate this question:
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- 13.
Agent Blondell is offering a free television to every applicant who agrees to buy insurance through his agency. In most states, this is an illegal practice known as
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Rebating.
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Twisting.
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Misrepresentation.
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Failure of fiduciary responsibility.
Correct Answer
A. Rebating.Explanation
A is correct. Rebating is giving or offering some benefit other than those specified in the policy, such as cash, gifts, or securities, to induce a customer to buy insurance. Rebating is illegal in all but two states.Rate this question:
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- 14.
A heavy snowfall causes the roof over Amaya's living room to collapse. The insurance company asks her to move her belongings out of the living room to protect them from further damage and put a tarp over the roof until it can be repaired. It also asks her to complete a proof of loss form listing the items that were damaged. This is an example of the application of what policy condition?
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Appraisal
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Arbitration
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Duties after loss
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Subrogation
Correct Answer
A. Duties after lossExplanation
C is correct. Most insurance policies include conditions that specify what the insured and insurer must do when a loss occurs. The insured's responsibilities after a loss include giving notice of claim to the agent or company, protecting property from further damage, and completing a proof of loss form.Rate this question:
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- 15.
Which of the following is a personal and advertising injury?
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Broken leg
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Death
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Calling a client a cheat and a fraud
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Dog bite
Correct Answer
A. Calling a client a cheat and a fraudExplanation
The other answer choices are examples of bodily injury.Rate this question:
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- 16.
The Excel Insurance Company is incorporated in the state of Tennessee. It is also authorized to do business in Georgia. In Georgia, Excel is known as what type of company?
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Alien
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Foreign
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Domestic
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Non-admitted
Correct Answer
A. ForeignExplanation
B is correct. Insurance companies are known as domestic companies in their home states, foreign companies in other states in which they are admitted to do business, and alien companies if their home office is located in a country other than the United States.Rate this question:
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- 17.
Consuela's Homeowners policy has an 80% Coinsurance condition. Her home's value is $125,000. What is the minimum amount of coverage she must carry to avoid a coinsurance penalty for partial losses?
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$125,000
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$100,000
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$80,000
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$75,000
Correct Answer
A. $100,000Explanation
B is correct. A Coinsurance condition requires an insured to carry a certain amount of insurance, which is expressed as a percentage of the insured property's value, in order to avoid a coinsurance penalty for partial losses. In this case, Consuela must carry insurance at least equal to 80% of the home's value, or $100,000, in order to satisfy the requirement.Rate this question:
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- 18.
Adequate coverage for large, powerful boats is provided by which of the following?
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A homeowners policy
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A homeowners policy with the Watercraft endorsement attached
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Specialized personal watercraft policies, such as Outboard Motor and Boat, Boatowners, or Personal Yacht policies
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The reinsurance component of FAIR Plans
Correct Answer
A. Specialized personal watercraft policies, such as Outboard Motor and Boat, Boatowners, or Personal Yacht policiesExplanation
C is correct. A homeowners policy provides only limited coverage for watercraft. Property coverage is subject to a special limit of $1,500, and coverage can be totally excluded for certain perils. Liability coverage is excluded for boats with motors of more than specified horsepower or boats of more than a specified length. Insureds typically need more coverage for this exposure than that provided by a homeowners policy, particularly those who own larger or more powerful boats. This coverage can be provided through Inland Marine forms, Ocean Marine policies, or specialized policies.Rate this question:
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- 19.
Under the additional coverages of the Businessowners property coverage, property removed to protect it from loss will be covered at another location for up to how many days?
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5 days
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10 days
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20 days
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30 days
Correct Answer
A. 30 daysExplanation
D is correct. The preservation of property additional coverage covers loss from any cause of loss to property that was removed from the insured location to protect it from damage by a covered peril. Coverage applies for up to 30 days after the property is first moved.Rate this question:
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- 20.
Which of the following represents a pure risk?
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Terry places a bet on the outcome of a basketball game.
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Margaret's dog is temperamental. She's afraid that it will bite a neighbor someday and she will be held responsible.
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Sam transfers all of his retirement funds into a stock that he expects to rise in value.
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Cindy, along with 32 others, puts $100 into an Indy 500 race pool at work. The person holding the name of the winning driver will win the entire $3,300.
Correct Answer
A. Margaret's dog is temperamental. She's afraid that it will bite a neighbor someday and she will be held responsible.Explanation
B is correct. A pure risk is one that involves only the possibility of loss. Choices A, C, and D are examples of speculative risks in which there exists both the possibility of gain and the possibility of loss.Rate this question:
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- 21.
Which of the following statements concerning regulation of the insurance industry is correct?
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The insurance industry is regulated exclusively by the federal government.
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The insurance industry is very loosely regulated.
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The state insurance department is responsible for controlling insurance matters within the state.
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The state insurance department serves only the interests of the insurance industry.
Correct Answer
A. The state insurance department is responsible for controlling insurance matters within the state.Explanation
C is correct. Insurance is regulated primarily by the states. It is closely regulated for the good of the insurance industry and the general public.Rate this question:
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- 22.
A woman is injured when she breaks a tooth on a rock that mysteriously found its way into a box of cereal. This is an example of which of the following?
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Premises and operations exposure
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Products-completed operations exposure
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Contingent liability exposure
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Contractual liability exposure
Correct Answer
A. Products-completed operations exposureExplanation
The products-completed operations hazard includes all BI and PD occurring away from the premises owned or rented by the insured, and arising out of the insured's product or work, other than products that are still in the insured's physical possession and work that has not yet been completed or abandoned.Rate this question:
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- 23.
Under the supplementary payments provided by general liability coverage, when a vehicle to which the bodily injury insurance applies is involved in an accident and bail bonds are required, the insurer will pay up to what amount?
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$250 for the cost of the bail bonds
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$200 for the cost of the bail bonds
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$150 for the cost of the bail bonds
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$100 for the cost of the bail bonds
Correct Answer
A. $250 for the cost of the bail bondsExplanation
Answer A is correct. Under the supplementary payments provided by CGL coverage, when a vehicle to which the bodily injury insurance applies is involved in an accident and bail bonds are required, the insurer will pay up to $250 for the cost of the bail bonds.Rate this question:
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- 24.
Theresa, a spectator at a baseball game, is injured when an errant ball hits her in the head. She sues the stadium owners for negligence. Which one of the following defenses against negligence would the owners probably use?
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Assumption of risk
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Comparative negligence
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Contributory negligence
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Statute of limitations
Correct Answer
A. Assumption of riskExplanation
A is correct. Assumption of risk applies when a person knowingly exposes himself or herself to danger or injury. When a person assumes this risk, he or she might be prevented from recovering from a negligent party. This doctrine is frequently associated with injuries incurred by spectators at sporting events.Rate this question:
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- 25.
George is a trash collector earning $35,000 a year who hurts his back on the job, so he can no longer go out with the collection trucks. However, he can still be a route coordinator in the office at a salary of $25,000 per year. To what extent is George industrially disabled?
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$35,000 per year
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$25,000 per year
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$10,000 per year
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$0 per year
Correct Answer
A. $10,000 per yearExplanation
C is correct. Industrially disability measures the earnings an injured worker had before and after the injury. George's industrial disability is found by subtracting his route coordinator earnings of $25,000 from his trash collector earnings of $35,000.Rate this question:
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- 26.
Under most property insurance policies, the policy territory includes which of the following?
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Only the United States
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The United States, its territories and possessions, and Canada
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The United States, Canada, and Mexico
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All of North America and Europe
Correct Answer
A. The United States, its territories and possessions, and CanadaExplanation
Answer B is correct. The policy territory typically includes the United States, its territories and possessions, and Canada. Mexico and Europe are not included.Rate this question:
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- 27.
A device that is used to minimize small nuisance claims and that helps to keep insurance premiums down is called what?
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Arbitration
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Deductible
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Valued policy
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Coinsurance
Correct Answer
A. DeductibleExplanation
Answer B is correct. Many property insurance policies have a deductible, which is the amount of a claim the insured has to absorb before the insurance applies. Deductibles reduce the cost of insurance by eliminating small claims. The amount of the deductible is stated in the declarations. Arbitration is a means of settling claims disputes when the insured and the company disagree on the value of property. A valued policy is one under which a certain value for property is stated in the policy, regardless of its value at the time of any loss. Coinsurance is a means by which insureds share in partial losses if they have not insured their property for full value.Rate this question:
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- 28.
J&M Industries does not have a group health insurance plan for its employees. Instead, it pays employees' medical expenses out of a fund specifically created for this purpose. This is an example of
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Fraternal insurance.
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Self-insurance.
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Reinsurance.
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Government insurance.
Correct Answer
A. Self-insurance.Explanation
B is correct. With self-insurance, part or all of the risk of loss is borne without the benefit of insurance coverage to fall back on if a loss occurs.Rate this question:
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- 29.
Which of the following is not one of the duties of an agent?
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Making appropriate coverage recommendations to prospective customers
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Writing the provisions of a customer's policy
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Helping prospective customers complete the application
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Assuring that customers understand the coverage they are purchasing
Correct Answer
A. Writing the provisions of a customer's policyExplanation
B is correct. Agents have a responsibility to interact effectively with customers in regard to the insurance transaction, but they do not determine the provisions of the policies the insurer issues.Rate this question:
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- 30.
George Hawthorn is employed by Moison Appliances as a shipping clerk. As he is stacking TVs in the storage room, he is surprised by two men, both carrying guns. They proceed to empty the warehouse of TVs. This is an example of what?
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Burglary
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Robbery
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Mysterious disappearance
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A fidelity loss
Correct Answer
A. RobberyExplanation
B is correct. In Crime forms, robbery is defined as the unlawful taking of property from the care and custody of another person. The robber must have caused or threatened to cause bodily harm to the person being robbed or must have committed an obviously unlawful act that is witnessed by the person being robbed. Burglary is the taking of property by stealth rather than by force or threat.Rate this question:
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- 31.
Commercial insureds who need more Liability coverage than provided by a certain policy or want coverage for losses excluded by a certain policy should purchase which of the following?
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Difference in Conditions policy
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Commercial Umbrella policy
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Surety bond
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Fidelity bond
Correct Answer
A. Commercial Umbrella policyExplanation
B is correct. Commercial Umbrella policies provide catastrophic Liability coverage for business risks. Because the Umbrella is not designed to handle usual or everyday exposures, the insured must have underlying Liability coverage before an Umbrella will be issued. The Umbrella can cover certain losses that are excluded by the underlying insurance.Rate this question:
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- 32.
Which one of the following answer choices lists all of the parties to a Surety bond?
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Principal and obligee
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Principal, obligee, surety
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Surety and obligee
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Principal and surety
Correct Answer
A. Principal, obligee, suretyExplanation
B is correct. There are three parties to a Surety bond: the principal, the obligee, and the surety.Rate this question:
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- 33.
Vanessa's Liability coverage has split limits of 100/300/50. How much coverage does Vanessa have for property damage liability?
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$5,000
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$50,000
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$100,000
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$300,000
Correct Answer
A. $50,000Explanation
B is correct. The last figure is the Property Damage limit.Rate this question:
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- 34.
A voluntary action to rid the ship of cargo to prevent further damage is called what?
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Jettison
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Particular average
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Barratry
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General average
Correct Answer
A. JettisonExplanation
Jettison is permitted if the action is taken to save the remaining property. The loss incurred by sacrificing a portion of the cargo will be reimbursed.Rate this question:
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- 35.
The tread on Alan's automobile tires is very thin. This is an example of what type of hazard?
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Physical
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Moral
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Morale
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Obvious
Correct Answer
A. PhysicalExplanation
A is correct. Worn tread is a physical condition that reduces Alan's ability to control or stop his vehicle.Rate this question:
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- 36.
An individual lives in an apartment. Which homeowners form should he purchase to cover his personal property?
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HO-4
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HO-6
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HO-8
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HO-3
Correct Answer
A. HO-4Explanation
A is correct. The HO-4 is designed for tenants. It provides broad coverage for personal property and no coverage for the dwelling.Rate this question:
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- 37.
If the named insured acquires a new car that does not replace a previously insured auto, what must the insured do to obtain liability coverage for the auto under her Personal Auto policy from the day it is acquired?
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Nothingcoverage is automatic
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Submit a new policy application
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Notify the company of the new car within 14 days of the purchase
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Notify the company immediately; no coverage applies until the company is notified
Correct Answer
A. Notify the company of the new car within 14 days of the purchaseExplanation
C is correct. The Personal Auto policy considers newly acquired cars to be covered autos. How coverage applies depends on several factors, such as the policy coverage, whether the car is a replacement auto, and when the insurer is notified about the new car.Rate this question:
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- 38.
Under the dwelling property forms, personal property moved to a new principal residence will be automatically covered at the new location (subject to policy expiration) for a period of how long?
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60 days
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30 days
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20 days
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10 days
Correct Answer
A. 30 daysExplanation
Answer B is correct. Coverage is provided for personal property moved from the described location to a new principal residence. This coverage applies only for 30 days and not beyond the policy expiration date.Rate this question:
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- 39.
The name of the coverage that provides legal liability insurance for damage to customers' autos that are left with the insured for service, repair, or storage is which of the following?
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Garage physical damage
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Garage errors and omissions
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Garage liability
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Garagekeepers coverage
Correct Answer
A. Garagekeepers coverageExplanation
Answer D is correct. The liability section of a garage policy excludes coverage for damage to property of others in the insured's care, custody, or control. For garages, this leaves a significant uninsured exposure, but the specific coverage for this exposure can be purchased under the garagekeepers coverage section of the policy.Rate this question:
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- 40.
LaTonya purchases a house from John. She borrows $75,000 from First City Bank that, along with her $25,000 down payment, equals the $100,000 purchase price of the home. Who has an insurable interest in this home? Choose all that apply.
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LaTonya
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John
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LaTonya's son, who would like to inherit the home some day
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First City Bank
Correct Answer(s)
A. LaTonya
A. First City BankExplanation
A and D are correct. Insurable interest exists when there is an actual economic interest in the safety or preservation of the subject of the insurance from loss or destruction or financial damage or impairment. LaTonya has an insurable interest in the home because she owns it. First City Bank has an insurable interest as long as it carries a mortgage on the home.Rate this question:
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- 41.
Which of these items of personal property would be covered under a Dwelling policy when Coverage C is written?
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A motorcycle
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A pet poodle
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A pool table
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A sailboat
Correct Answer
A. A pool tableExplanation
C is correct. Animals, motor vehicles, and most types of boats are excluded under Coverage C.Rate this question:
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- 42.
Under a CPP, when does the Inspections and Surveys condition give the insurance company the right to inspect the insured's premises?
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At any time
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Quarterly
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Every six months
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Once a year
Correct Answer
A. At any timeExplanation
A is correct. The insurance company has the right to inspect the insured's premises at any time.Rate this question:
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- 43.
Something that might increase the likelihood that a loss will occur, is called what?
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Peril
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Hazard
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Risk
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Catastrophe
Correct Answer
A. HazardExplanation
Answer B is correct. A hazard is something that increases the chance of loss, such as a loose step or flammable materials. A peril is the cause of loss, such as a fire. Risk is any outcome that involves uncertainty. A catastrophe is an unexpected event, such as an earthquake or flood, which is not considered a hazard.Rate this question:
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- 44.
The law of large numbers
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Prohibits insurance with extremely high premiums.
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States that there must be a narrow spread of risk for insurance to be effective.
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States that the more examples used to develop a statistic, the more reliable the statistic will be.
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Requires all members of society with insurance exposures to purchase insurance.
Correct Answer
A. States that the more examples used to develop a statistic, the more reliable the statistic will be.Explanation
C is correct. The law of large numbers says that the more examples used to develop a statistic, the more reliable the statistic will be.Rate this question:
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- 45.
What is meant by a contract of adhesion?
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Both parties are required to provide services for the other.
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One party draws up the contract provisions, and the other party adheres to the terms.
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The contract can be revoked by any party at any time for any reason.
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A contract that is formed without any consideration by either party.
Correct Answer
A. One party draws up the contract provisions, and the other party adheres to the terms.Explanation
B is correct. Insurance policies are contracts of adhesion because the insurance company drafts the policy provisions and the insured adheres to the policy terms.Rate this question:
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- 46.
A nonexclusive agent
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Represents a single insurance company.
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Works for a direct writer.
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Is an independent businessperson.
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Does not collect commissions.
Correct Answer
A. Is an independent businessperson.Explanation
C is correct. A nonexclusive, or independent, agent represents more than one company. This type of agent collects commissions on the policies sold, but collects no salary from the companies he or she represents.Rate this question:
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- 47.
Can states require insurance companies to use certain forms or rates in connection with certain types of insurance?
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No, that would be a violation of the principle of open competition.
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No, they can only require that forms and rates be subject to prior approval.
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No, insurers can always begin using forms and rates as soon as they are properly filed with the state.
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Yes, some states have mandatory forms or rates for certain coverages.
Correct Answer
A. Yes, some states have mandatory forms or rates for certain coverages.Explanation
D is correct. In addition to open competition, prior approval, and file-and-use rules, some states mandate the forms or rates for certain coverages.Rate this question:
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- 48.
Under the Appraisal condition, the insured and the insurance company each chooses an appraiser. If the appraisers do not agree, the dispute is submitted to a third individual agreed upon jointly by the insured and the insurance company. That third party is called the
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Attorney-in-fact
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Judge
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Super-appraiser
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Umpire
Correct Answer
A. UmpireExplanation
D is correct. The umpire is selected jointly by the insured and the insurance company and settles the dispute if the appraisers selected by the insured and the insurance company do not agree on the value of the loss.Rate this question:
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- 49.
Which of the following could not be covered under a Dwelling policy?
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A mobile home that is not permanently located
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A single family home that is under construction
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A three-unit townhouse
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A home that is rented to another person
Correct Answer
A. A mobile home that is not permanently locatedExplanation
A is correct. To be eligible, a mobile home must be permanently located.Rate this question:
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Jan 10, 2025Quiz Edited by
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Sep 22, 2012Quiz Created by
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